Businesses cut their investment by a further 2%, while consumer spending growth was a sluggish 0.9%.

The weak private-sector spending counteracted a big round of stimulus spending unleashed by the government, including tax cuts for businesses.

"It was horrible," said Jankiel Santos, chief economist at BES Investimento in Sao Paulo. "The government is certainly going to be worried about this. The expectation is that they are going to come out with more stimulus measures."

In September, the government cut its growth forecast for the year to 2% - a figure that was still seen as too optimistic by markets even before the latest data release.

Growth for 2012 now looks set to be closer to 1%, compared with 2.7% last year and 7.5% in 2010.

President Dilma Rousseff launched the first in a series of measures aimed at injecting up to $50bn (£32bn) into the economy over the next five years, and increasing the private sector's role in the economy.

The plan included privatising about 14,000km of railways and roads, followed by selling ports and lowering energy costs.